Thursday, April 19, 2012

Updated February 2013Recent
news coverage from Europe has shown us just how unpopular
government austerity measures are among the "sweaty masses". People
tend to express anger when the ruling class imposes cuts on entitlements,
particularly when those cuts have been necessitated by economic mismanagement
by the very people that are imposing austerity. A Discussion Paper
entitled "Austerity and Anarchy: Budget Cuts and
Social Unrest in Europe, 1919 - 2009" by Jacopo Ponticelli and Hans-Joachim Voth
provides an interesting look at the historical relationship between social
instability and violence as it relates to government austerity. This
interesting paper could well provide us with a look at how North American
societies could deal with painful cuts in government spending.

The
authors open by noting that social unrest has been a key issue in history,
particularly since the French Revolution. Social unrest is a powerful
mechanism for political change; one need look no further than the Arab Spring
to see how powerful the public is when acting in concert against government.

The
authors focus on a European database from 1919 to 2009 as the continent
underwent changes from high levels of instability and low levels of prosperity
in the first half, changing to become a very stable and prosperous society in
the second half. Social unrest includes rioting, demonstrations,
assassinations, government crises and attempted revolutions. The data is
then compiled into an index that summarizes all aspects of social unrest which
the authors term CHAOS and then compared to cuts in government spending in an
attempt to answer the question - for every percentage cut in government
spending, how much social instability should we expect?

Here
is a graph showing the CHAOS or number of social unrest incidents over each
year of the study:

In
light of the current debt problems faced by Italy, it is interesting to note
that in the 90 year sample, Italy had the highest number of incidents at 38 in
1947 alone including 7 general strikes, 19 riots and 9 anti-government
demonstrations. The period between the two World Wars showed relatively
high levels of unrest and the period immediately after World War II and between
the years of 1968 and 1994 showed unusually high levels of unrest with several
years showing 30 or more events in a single year.

Here
is a chart showing the causes of unrest in the period between 1980 and 1995,
how many events there were related to each cause and the average number of
protestors per event along with the numbers arrested:

In
the 15 year sample, there were relatively few protests related to the
imposition of austerity measures, however, these protests tended to be far
larger by an order of magnitude when compared to protests related to other
causes.

The
data shows a very clear correlation between the size of austerity measures
taken as a percentage of GDP and the degree of social unrest. CHAOS, or
the sum of all actions of social unrest in each country in a given year, tends
to rise as budget cuts rise as shown in this graph:

As I
noted above, please remember that this is real data taken from 90 years of
European history. When government expenditures are increasing (white
bars), CHAOS registers less than 1.5 events per year. When government
expenditures are reduced by 2 percent of GDP, CHAOS rises to 2.4 events per
year and, when government expenditures are reduced by 5 percent or more, CHAOS
rises to more than three events per year per country.

On
the graph, you can also see a rise in each component of CHAOS as governments
enact more stringent austerity measures; the frequency of strikes,
assassinations, riots and demonstrations increases as governments cut spending
as a percentage of GDP.

The authors conclude that governments may be reluctant to
impose austerity measures on their electorate until it is too late because of
governments fear societal instability and unrest. Cutting expenditures
significantly increases the frequency of anti-government demonstrations,
general strikes and attempts to overthrow the existing government order. Another
study has also shown that more heavily indebted nations tend to have higher
levels of social unrest, a factor that is most certainly working against Greece
and will not likely work in the favour of Italy should history repeat itself.

Subscribe To

About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.